As more investors eye Asian corporate bonds and the group of companies ready to tap this demand grows, good relations between issuers and investors is becoming ever more important, argued fund managers this week.
Bond issuers in Asia coming to the market for the first time should be aware of the importance of having a direct line of communication to their investors, says Gregor Carle, investment director for fixed income and investment solutions at Fidelity International in Hong Kong. He was speaking on a panel at FinanceAsia's Corporate Funding Asia conference in Hong Kong this week (see story on private equity from the event).
“If companies want to make a commitment to coming to the public debt markets, they should have a direct relationship with their investors,” says Carle. That way issuers hear directly from the people lending the money their views on how well or badly they are doing, he adds.
“Not wishing to be too cruel to the role investment banks and brokers play in the process, but they generally get a fee, and it's the end buyers who end up with the conditions,” notes Carle. “From our perspective, we don't want a middle man between us and the issuers – and we'll be very transparent with them.”
Another area where improvement is needed in terms of bond issuance is that bond covenants have not been respected in Asia as much as in Western markets, he adds. “And I think that will be to the detriment of the development of the markets [in Asia], unless people step back and say 'we've got to fall in line with best practice'.”
Angus Hui, Hong Kong-based fund manager for Asian fixed income at Schroder Investment Management, suggests Asian bond issuers have in the past not been as familiar with the level of communication that international investors would be expecting. But he says that is changing, and the quality of information provided is improving as more investor flows come into the region.
As for the kind of approach issuers should be taking to make potential investors more comfortable, Carle points to the importance of having a funding plan and the benefits of being rated. “If you [as an asset manager] have unrated instruments in your portfolio, you can be pretty sure your clients are going to ask what they are,” says Carle. “They raise a red flag.”
Having a rating can only help your liquidity and help reduce funding costs, agree Carle and Hui. “[Obtaining a rating] may look like a cost up front,” adds Carle, “but it can pay off significantly later in terms of investor base, funding and index inclusion.”